1. If
you
set
your
dividend
payout
ratio
by
looking
at
the
average
for
the
sector
in
which
you
operate,
which
of
the
following
assumptions
are
you
making?
a.
That
your
growth
is
close
to
the
overall
growth
rate
for
the
sector
b. That
all
firms
in
the
sector
face
similar
operating
risk
c. That
all
firms
in
the
sector
have
similar
debt
ratios
d. That
all
firms
in
the
sector
have
similar
dividend
clienteles
e. All
of
the
above.
2. You
are
comparing
the
dividend
payout
ratios
across
banks,
with
large
variances
in
expected
growth,
size
and
regulatory
capital
ratios.
Which
of
the
following
types
of
banks
would
you
expect
to
have
the
lowest
dividend
payout
ratios?
a. Small,
high
growth
banks
with
high
regulatory
capital
ratios
b. Large,
low
growth
banks
with
high
regulatory
capital
ratios
c. Small,
high
growth
banks
with
low
regulatory
capital
ratios
d. Large,
low
growth
banks
with
low
regulatory
capital
ratios
3. Assume
that
you
are
comparing
the
dividend
payout
ratios
of
computer
software
companies
and
have
run
a
regression
of
payout
ratios
on
expected
growth
in
earnings
per
share:
Dividend
Payout
ratio
=
0.60
1.5
(Expected
growth
rate)
(Thus,
with
an
expected
growth
rate
of
20%,
your
expected
payout
ratio
would
be
30%
=
.6+1.5(.2)
=
.3)
If
a
company
pays
no
dividends,
how
high
would
its
growth
rate
need
to
be
to
justify
this
policy?
a. 0%
b. 20%
c. 40%
d. 80%
e. None
of
the
above
4. You
have
run
a
regression
of
payout
ratios
against
expected
growth
and
risk
(beta)
for
all
companies
in
the
market
and
arrived
at
the
following
equation:
Payout
ratio
=
0.80
-
1.2
(Expected
growth)
.25
(Beta)
Using
this
regression,
estimate
the
payout
ratio
for
a
firm
with
an
expected
growth
rate
of
20%
and
a
beta
of
1.2.
a. 0%
b. 26%
c. 50%
d. 56%
e. 80%
Session
28:
Post
class
test
solutions
1. a.
All
of
the
above.
It
is
only
if
growth,
risk
(operating
and
financial)
and
investor
bases
are
similar
that
payout
ratios
should
be
similar
as
well.
2. c.
Small,
high
growth
banks
with
low
regulatory
capital
ratios.
These
banks
will
need
to
invest
more
in
regulatory
capital
both
because
they
are
growing
and
because
they
are
under
capitalized.
That
will
result
in
less
cash
available
for
payout.
3. c.
40%.
To
get
an
expected
payout
ratio
of
0%
0
=
.60
-1.5
(X)
X
=
.40
4.
b.
26%..
Payout
ratio
=
=
0.80
-
1.2
(.20)
.25
(1.2)
=
0.26